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Sunday 25 May 2014

The Fight against Diminishing Returns

This is a business post, "Diminishing Returns" is not some corporation we are all fighting against . . . . 

Over the 12 months to the end of April my wealth went from zero to 104bn ISK.  However, the profits i make in recent months are a smaller percentage of the wealth i have deployed in Sell Orders, Manufacturing etc than they used to be.  That is something i suspect all business operations in Eve come up against at some stage.

Below are four charts which show the progression to this point with some discussion on growth and returns.

The chart above is the main chart i look at to review my growth in wealth.  Quite simply, it shows my wealth at the end of each month with the blue bars measured in billions (left hand scale), and the daily profits i was making with the red line measured in millions (right hand scale).

So, in September and October, when i was purely trading and before i started manufacturing, my daily profit was about 240m ISK.  However, once i start to sell the items i manufactured my daily profit peaked in December at 607m ISK.  It then settled down at about 350m ISK per day given i am often away on business.

The chart above merely looks at the monthly profit i made (i.e. daily profit x days in the month) to give a simpler view of how much i am making each month.  So, pre manufacturing my monthly profit was about 7bn ISK, once manufacturing started up my monthly profit rose to 19bn ISK in December (likely an xmas affect in there also) and is now plateauing at about 10bn ISK per month given i am often away on business.

So far, so good.  Can't sneeze at 10bn profit per month - and that is after all costs including Plex for my accounts and the odd ship blowing up as I PVE.

However, as someone pointed out to me in an email, my returns on the capital i have deployed are falling over time.  This is neatly shown in the chart below which looks at the Monthly ROCE i make.  ROCE is short for Return On Capital Employed and measures the profits i make divided by the capital i have (i.e monthly profit divided by total wealth).

I have not shown May to July 2013 because the monthly profits i was making were more than my starting wealth in those months given it was early days and quite easy to find items to sell in Dodixie for 100% over what they were selling for in Jita.

From August to December 2013 i was roughly increasing my wealth by 30 to 40% per month (ROCE ranged from 30 to 40%).  I managed to maintain that level because i was scaling up my operations by moving from items costing 20m to 40m to 100m etc to sell at 20% profit margins + opening up in new trade hubs + starting manufacturing.

It would be great if i could have maintained my ROCE at the 40% levels i was doing pre-January (i.e. my profits in a given month would be 40% of my total wealth the prior month) but that would be very hard to keep up.  It would imply that i would make 40bn in May 2014 alone given i started the month with just over 104bn!  To maintain a flat ROCE i would need to be able to deploy my ever increasing wealth into additional trading / manufacturing that made me similar returns than before.

One method would be to open in a new trade hub - but i am already in all the trade hubs.

Another method would be to play for longer each day - but i am limited to 45 minutes.

Another method would be to find new items to sell or manufacture but i am finding there is a limit.  Though this would be my best route from here - being away on business a lot in 2014 has meant that my research into looking for new items to sell has stalled somewhat.

Therefore, my monthly ROCE has fallen to 10%.  Hopefully i will be around longer from the middle of June through July and August - hence i may be able to increase my ROCE in the near term.

However, i would have fallen further had i not found something to invest my surplus ISK into.

The chart below shows how my wealth is split at the end of each month between sell orders, spare ISK and Plex etc.  It also shows my provision i take (i provide against 20% of the value of my sell orders - see my monthly updates for the reason behind this).

As the chart above shows, the amount i have in Sell orders has not really gone up for the last 3 months which indicates that i am not finding new items to sell in the trade hubs and not finding new items to manufacture.  In reality, what is happening is that i am finding new items to sell but these are counted by items that i no longer sell because the profits are too low.

In January 2014 my spare ISK peaked at 35bn ISK.  That is dead ISK not earning a return and so i decided to invest all spare ISK (less 10bn for business purposes) in Plex.  Hence, the pink part is showing the Plex i hold which at the end of April stood at 64 Plex valued at 45bn.  Over the 3 months since i have buying Plex it has risen in value by 11% (though i have been buying into a rising market so the weighted average rise for me is 4.2%), as shown below.

The chart above shows my Plex holding and timing of purchases.  In all, to the end of April 2014, my Plex holdings have generated an increase in wealth of 1.8bn ISK for me.

Going forwards, i would be happy if i could get back to earning 20bn a month from spending 45 minutes per day.  That would equate to a ROCE of 20% for now.

Sunday 18 May 2014

Market PVP

i know, not quite like destroying your enemy in deep space with half a capacitor left and down to your last hull point . . . .

. . . . but below is an example of what happens on the market when sellers try and keep their position as the best sell order.

What we have above is my sell order in blue offering to sell 2 Caldari Navy Warfare Mindlinks for 326,975,504.00 ISK.

A competitor has put their sell order up for 325,975,503.00 ISK.

They are hoping that i focus on the last digit and drop my price by 1 ISK to 326,975,502.00 which of course would leave their sell order as still the lowest and me with 4 minutes to wait to update my order - and then the hope is that i would not bother to wait and just move on!

. . . . . . i suspect there are many hardened low/null sec PVP'rs who are by now crying into their keyboards at the travesty of the term "market PVP" . . . . 

Thursday 15 May 2014

Saved by the game mechanic

These can often go either way but on this occasion the game mechanic saved me.

Below i am attempting to sell a Capital Semiconductor Memory Cell I and i have put one too many 9's in the sell price and so i am attempting to sell about 10x above the normal sale price.  If that had gone through then it would have cost me 18.7m ISK in Broker Fees which would have effectively been wasted and likely wiped out my profits for the sale on this product.

As with all traders, i am typing in my sell price at lightning speed and so could miss the clues in the image below.

Fortunately, the game mechanic kicked in and asked me if i really wanted to go ahead with this.  I was saved from myself.

In the moment between pressing "enter" on the sale price and the warning box coming up, my life generally goes into slow motion.

On other occasions the sale price goes through and i waste between 10m to 100m on Broker Fees.

In all, i suspect i am break-even on blunders.

Sunday 11 May 2014

April 2014 update

This is it - i am now worth over 100bn ISK.  It took exactly a year.

Though i was away Eve for slight over 2 weeks in April (again) my wealth increased by 10.9bn ISK to 103.7bn ISK, which is an average of 362m ISK per day.  As ever, I had expected nearer 7bn.

This month my holding in Plex generated 440m of the 10.9bn growth in my wealth.  My Plex holding is now 64 Plex worth 45.1bn.

I expected February, March and April to be slow given real life commitments and May is not going to be any better.

Therefore, during these months i am only selling the T1 items i manufacture and only trading other items where i make at least 15m ISK profits and 20% margins - though in the week here and there that i am around i am willing to drop my profit target to 10m ISK.

My strategy is to focus on low volume but high margin items that i either manufacture or buy (off sell orders) in Jita to sell in Dodixie / Hek / Rens / Amarr.

I don't have any standings of note.  To reduce my costs of trading i have trained all my alts that post sell orders to Broker 4 and Accounting 4.

For those able to devote much more time to Eve, one way of reading this blog is to see how little time is required to generate sufficient ISK to plex your own account.

I have 2 accounts with 6 alts in total.
  • One one account: I have a trader at Dodixie and a trader at Hek which sell items that have been hauled there from Jita; and I have a manufacturer in the Lonetrek region that sells items in Jita and sends items to the traders in Dodixie, Hek, Amarr and Rens to sell.
  • On the other account: I have a buyer in Jita that is is only there to buy items in Jita to send to the traders in Dodixie, Hek, Amarr and Rens; I have an alt that is skilling up in Invention which currently sits in Amarr to sell the items manufactured by my Lonetrek manufacturer; and i now also have an alt that sits in Rens to also sell the items manufactured by my Lonetrek manufacturer.
All my hauling is done by third parties, namely PushX Industries - the time required to haul items from Jita to my traders in Dodixie and Hek would take up too much time.  Better to let these third parties do the hauling (for a fee, of course) whilst i am offline.  All my hauling is "Rush Jobs" and generally takes no less than 5 hours (often in under an hour) to haul from Jita to my four locations in Dodixie / Hek / Amarr / Rens (which are also the other trade hubs).  On average i pay 25m ISK per haul (so 100m ISK if i want to haul to all 4 trade hubs in one time) but it is well worth it given i can get those items bought in Jita onto the market in the other trade hubs very quickly and the hauling costs make up 1 to 3% of my sales price.  Not much given i aim to make 20% margins before all costs (hauling, broker fees, sales taxes).  I wrote a post on Rush Jobs which details why it is more profitable paying up.

I am now buying 1 Plex a month to finance my two accounts.  So, 700m ISK per month costs going forwards.  I do occasionally benefit from some kind soul upgrading their account having used the link to the right >>>>>>>>>

Plex: As of the end of April i held 64 Plex at a cost of 43.3bn ISK which at 705m per Plex was then worth 45.2bn ISK.  In other words, my holding in Plex has made me 1.8bn since i started investing in Plex at the end of February.

My biggest headache was that i was sitting on too much ISK which was not invested in the market.  I had up to 35bn ISK in my wallet which was dead money.  At most i need to hold 10bn ISK to finance my business, the other 25bn or so is surplus to requirements.

I know two things about that ISK.  Firstly, it will be there tomorrow with no chance of making a profit (or a loss).  Secondly, there is inflation in Eve so in effect it is not keeping up with the cost of living in Eve - in other words, its value to me in the future is lower than its value to me today.

So far, Plex is the best item i can find that (in the medium to long term) is the best asset to keep up with inflation in Eve - as i hope to detail in my next post.  I expect to continue to invest all profits made each month into Plex from here.

Dodixie trader: Life remains good and consistent

Items for sale fell back from 20bn ISK to 18bn ISK which more reflected that i was away for the last couple of days of the month and so did not replace the sales i made.

I sell T1 manufactured items that my manufacturer makes in Lonetrek, and any item i can find that makes profits of over 15m ISK + has a profit margin of over 20% + is a slow seller.  I.e. ship equipment, implants, ship modifications, a few skillbooks and a few blueprints.

The alt is currently using 76 of the 141 trading slots.

This alt pays 0.80% broker fees to post an order and a further 0.90% sales tax on a successful sale.  No longer training.

There are no medium term goals for this alt – for now i will focus on the manufactured items from my alt in Lonetrek and selling expensive items hauled from Jita.

Hek trader: Life remains good and consistent

Items for sale rose to fell back from 15.6bn ISK to 15.0bn ISK.

Much like the Dodixie trader I sell manufactured items that my manufacturer makes in Lonetrek, and any item i can find that makes profits of over 15m ISK, has a profit margin of over 20% and is a slow seller.  I.e. ship equipment, implants, ship modifications, a few skillbooks and a few blueprints.  Other than the manufactured items, there are very few common items i sell in Dodixie and Hek.

I use 74 of the 129 available sell slots.

Pays 0.80% broker fees to post an order and a further 0.90% sales tax on a successful sale.  No longer training.

Amarr Trader: Best month ever

Only really fully started up in mid December and focuses solely on items manufactured by my alt in the Lonetrek region.  During February this alt's sales were 11.0bn ISK vs prior months 4.8bn ISK and i suspect the profits were 4bn ISK vs prior months 2.4bn ISK.

The increase is because i also sell one or two highly priced items i haul from Jita and i made some sales or T2 items i manufacture

Items for sale at the month end fell back from 10.9bn to 7.5bn which more reflected that i was away for the last couple of days of the month and so did not replace the sales i made.

I now use 23 of the 45 available sell slots - when i have time i am looking for a few other items to sell in Amarr.

Pays 0.75% broker fees to post an order and a further 0.90% sales tax on a successful sale.  During the month i increased Accounting to Level 4 and Broker Relations to Level 5 to reduce those fees / taxes.

The main aim of this alt is to train up for Invention, and here the training goes on.  Needless to say, with being busy in rl this whole invention thing has been on the back burner!

Rens Trader: fourth full month and though slower

Started just before xmas and also focuses solely on items manufactured by my alt in the Lonetrek region.  During April this alt made sales of 2.7bn vs prior month of 4.5bn ISK and i suspect profits of 1.4bn ISK vs prior month of 2.2bn.  Items for sale at the month end were 9.1bn ISK, up from prior month of 7.7bn.

Rens is a slower trade up so i did not expect to see great things - but being able to earn enough to buy two Plex per month is no bad thing.

I have no plans to expand into selling other items - i will stick to selling the items my manufacturer produces.

I trained this alt to give me 53 open sell slots and currently i use 39 of them.

Pays 0.8% broker fees to post an order and a further 0.9% sales tax on a successful sale.

No longer in training.

Manufacturing alt: This alt does all my manufacturing from the Lonetrek region which is within easy access to Jita.  Not much has changed since November.

This alt sells its items in Jita and contracts to Push Industries to haul items to the traders in Dodixie / Hek / Amarr / Rens to sell.

I have a list of 59 items i focus on to sell, currently selling 27 of them in Jita and 40 in Dodixie, Hek, Amarr and Rens - though perhaps less now in Amarr given competition has increased.  The other items that i watch have too low a profitability.

I own 44 blueprints worth over 1bn ISK, most of which have already comfortably paid for themselves.

This alt may have plateaued at 6 to 8bn ISK sales per month for now.  During the month it made sales of 7.8bn (vs 6.7bn ISK in the prior month) and estimated profits of 3.9bn vs prior month of about 3.3bn ISK.  It currently has 8.3bn of sell orders, up from the prior month of 7.3bn ISK.

My expansion into manufacturing has been a great success so far.  I am now training this alt up to manufacture T2 items and i am in the process of manufacturing my third T2 item - lets see how it goes but so far T2 items are not as profitable for me as the T1 items.

And all this takes is 15 minutes update time a day.

The current near term goals is to find other T1 items to sell as well as expanding into T2 items.

I have seeded a new market in Lonetrek - lets see how that goes.  It is slow at present though April was less than March with Sales of 600m ISK and profits of about 400m ISK.  I am hoping May will be much better though for now i can't think of a reason why that should be.

Outlook: May is going to be busy for me in RL (again!), hence i suspect i will be back to making 7bn ISK per month.

Current Wealth:

Expected business purchases in the next 30 days
  • Plex x1 = 0.7bn ISK

I don't count assets I use in the course of my business such as ships, fittings etc nor do I add back any expenses such as skills purchased etc.  The wealth I disclose is made up of items that are ISK or are in the process of being converted to ISK.

* I take a 20% provision against the items I am selling.  Eve calculates wealth by adding up the value of the sell orders hence it is possible to increase your wealth by buying an item for 100m ISK and putting a sell order for 120m ISK (in this case your wealth would increase by 20m ISK).  For me, I want my wealth to be calculated at cost until i finally hold it as ISK.  I know that the value of my sell orders will likely fall over time as I update my orders downwards as competition reduces their prices before my items are sold.  Hence the 20% provision is my best guess as to what cost is or at least the maximum reduction I would need to make to my sell orders as a whole before they are sold.

Wednesday 7 May 2014

Eve Online Fansites

You may or may not be aware that CCP has a list of Fansites.

Everything from Blogs, Guides, you name it is there.

Well worth a look.  Includes this blog.

I have included the Link in my "Useful Links" section on the right >>>>

Saturday 3 May 2014

Am i worth over 100b ISK?

A fair question.  But also a question of accounting.

If i add up all my Sell orders + the items sitting in hangers waiting to be put onto sale + ISK in my walletts + the value of all the Plex i hold then i am worth 107.9bn ISK (as at 31 March 2014).

Sounds fair, these are all items that are in ISK form or about to be sold for ISK.  I am not adding up ships or implants or even Blueprints that i use in my business.

However, the one thing i know about these sell orders is that they will not all be sold at the prices they are on at right now.  Competitors will come in and undercut me and therefore doubtless i will reduce my prices also.

Therefore, when i look at my wealth i take 20% off the value of my sell orders as a rough estimate as to what i will reduce my prices by in order to complete all the sales.

Given that, i am therefore worth 95.4bn ISK (as at 31 March 2014).

If i really could do it, i would value all my sell orders at the value of which i bought the items for in Jita or the cost of manufacture in Lonetrek.  Unfortunately, i don't have the ability to do that efficiently.

This is more an issue for someone like me who can have sell orders sitting there for a month at a time before they are completed.  Those traders that follow a strategy of selling fast moving (but low profit margin) items will see their sell orders quickly converted to ISK and so would perhaps not need to take a % provision against their sell orders to determine their wealth.